How to calculate long-run average total cost?
Understand the Problem
The question is asking for the method to calculate the long-run average total cost in economics. This involves identifying the total costs incurred by a firm when it adjusts all inputs and reaches optimal production levels in the long run, and then dividing that by the quantity produced to find the average.
Answer
\text{LRATC} = \frac{TC}{Q}
Answer for screen readers
To calculate long-run average total cost (LRATC) you divide the total cost (TC) by the quantity produced (Q)
Steps to Solve
- Identify total costs in the long run
The total costs ($TC$) in the long run include all fixed and variable costs that the firm incurs to produce a given level of output.
- Determine quantity of output
Identify the quantity ($Q$) of goods or services produced at this cost level.
- Apply the formula for average total cost
Calculate the long-run average total cost (LRATC) by dividing the total costs by the quantity of output produced. Use the formula: $$\text{LRATC} = \frac{TC}{Q}$$
To calculate long-run average total cost (LRATC) you divide the total cost (TC) by the quantity produced (Q)
More Information
Long-run average total cost can help firms understand their cost structure and guide them in making decisions about scaling production.
Tips
A common mistake is not including all costs when calculating the total costs. Make sure to account for all variables and fixed inputs that impact total production costs.
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